Sentance warns on inflation

THE UK is moving towards recovery though the Bank of England must be sure not to stoke inflation by leaving monetary policy loose for too long, Monetary Policy Committee (MPC) member Andrew Sentance warned last night.<br /><br />Speaking at Royal Holloway college, Sentance said: &ldquo;The latest Inflation Report shows that if we do not tighten policy to some degree, and keep interest rates at their current low levels, inflation is in danger of moving above the two per cent target beyond the two-year horizon.&rdquo;<br /><br />But although he believes we have yet to see the full impact of the Bank&rsquo;s quantitative easing&nbsp; (QE) policy,&nbsp; he said that over the coming months the MPC will need to assess whether the recovery in the economy is sufficiently well-established, and therefore&nbsp; not in need of further cash injections.<br /><br />Sentance said a significant fiscal tightening would be necessary to rebalance the UK economy. He added: &ldquo;But it must be seen as a long-term project. It is likely to take five years or maybe more to get the current fiscal deficit down to more comfortable proportions.&rdquo; <br /><br />Overall, Sentance was optimistic about the outlook for the UK economy, urging Britons not to take the third quarter contraction as a negative signal because there is enough positive evidence elsewhere &ndash; such as in falling unemployment &ndash; to suggest a fragile recovery is underway.<br />